Owning almost all of an investment sounds like control.
If one investor provides virtually all the capital in a fund, receives almost all the economic returns and carries almost all the investment risk, it is tempting to assume that the fund belongs in that investor’s consolidated financial statements.
IFRS 10 makes the question more difficult.
Control is not determined by economic exposure alone. An investor must have power over the investee, exposure or rights to variable returns and the ability to use that power to affect those returns.
That distinction has become the subject of a live IFRS Interpretations Committee discussion involving a fund where one investor holds 99.99 per cent of the economic interest but the fund manager retains the decision-making authority.
The issue creates an excellent ACCA SBR discussion because it exposes one of the most important principles in consolidation accounting.
Ownership and control are related, but they are not the same thing.
Candidates developing their consolidation technique with an ACCA SBR tutor should be able to move beyond ownership percentages and analyse where the substantive decision-making power actually sits.
The percentage can distract you from the real question
Imagine an institutional investor puts virtually all the money into an investment fund.
The fund manager makes the investment decisions.
The investor receives nearly all the economic benefits and bears nearly all the investment risk.
At first glance, consolidation seems obvious.
How could an investor owning 99.99 per cent of the fund not control it?
The answer is that IFRS 10 does not define control simply by asking who receives most of the returns.
The investor also needs power.
That means having existing rights that give it the current ability to direct the activities that significantly affect the investee’s returns.
If the investor cannot direct those relevant activities, the size of its economic interest cannot automatically fill that gap.
This is why starting with the percentage holding can produce the wrong answer.
The better starting point is to identify the relevant activities and determine who has the current ability to direct them.
IFRS 10 requires three elements of control
The control model in IFRS 10 contains three connected requirements.
An investor must have power over the investee.
It must be exposed, or have rights, to variable returns from its involvement.
It must also have the ability to use its power to affect those returns.
All three matter.
A very large investment clearly creates substantial exposure to variable returns.
If the fund performs well, the investor benefits.
If the fund performs badly, the investor bears the loss.
But exposure alone does not create control.
A lender may have a large economic exposure to a borrower without controlling it. A shareholder may own a significant interest while another party directs the relevant activities.
The accounting analysis must therefore separate economic exposure from decision-making power.
The current fund example makes the problem unusually clear
The fact pattern considered by the IFRS Interpretations Committee involves an investor holding 99.99 per cent of the investment in a fund.
The fund manager holds the remaining interest.
The investor did not determine the fund’s purpose and design.
The fund manager did.
The manager also retains the decision-making authority over the fund’s relevant activities.
Meanwhile, the investor has only protective rights. Its ability to remove or replace the fund manager is limited to circumstances such as breach of contract, wilful misconduct or gross negligence.
The fund also has a fixed contractual term during which the investor cannot simply withdraw its investment.
These details matter far more than the 99.99 per cent figure.
They force the analysis back towards power.
Protective rights do not normally create power
One of the easiest mistakes in a control question is to treat any contractual right as evidence of control.
IFRS 10 distinguishes between substantive rights and protective rights.
Protective rights are designed to protect the interests of their holder without giving that holder power over the investee.
A lender may be able to take action if a borrower breaches a loan agreement.
A minority shareholder may need to approve a fundamental change to a company’s constitution.
An investor may be able to remove a fund manager for fraud or serious misconduct.
Those rights can be important.
They do not necessarily give the holder the current ability to direct the relevant activities during normal operations.
In the single-investor fund example, the investor’s removal rights are limited to specified serious circumstances.
That is very different from having a practical ability to dismiss the manager without cause and appoint somebody else.
The first protects the investor.
The second could potentially influence who controls the fund’s decisions.
The fund manager being an agent does not solve everything
The particularly interesting part of the current issue concerns agency.
IFRS 10 requires a decision-maker to determine whether it acts as a principal or as an agent.
An agent primarily acts on behalf of another party or parties and therefore does not control the investee when exercising delegated decision-making authority.
That can create a tempting shortcut.
If the fund manager is an agent and does not control the fund, somebody else must control it.
The obvious candidate is the 99.99 per cent investor.
But IFRS 10 does not permit that automatic leap.
The Interpretations Committee’s tentative conclusion is that the investor cannot simply assume that all of the fund manager’s decision-making rights belong to it because the manager is an agent.
The investor still has to determine whether the manager is acting as its agent.
That requires analysis of the actual arrangement.
Agency requires delegation
This is the heart of the issue.
Where an investor has delegated decision-making authority to an agent, IFRS 10 requires the investor to treat those delegated rights as though it holds them directly.
That can create power.
Suppose an investor controls a business but appoints an asset manager to make particular investment decisions on its behalf.
The investor does not necessarily lose control simply because somebody else performs the day-to-day decision-making.
If the authority was delegated by the investor to its agent, the rights can effectively remain attributable to the investor for the control assessment.
The difficulty in the fund example is determining whether that delegation happened.
The investor did not design the fund.
It does not possess broad decision-making rights that it subsequently handed to the manager.
The fund manager already has the contractual authority.
Therefore, simply concluding that the manager is an agent does not automatically prove that the investor delegated those rights to it.
That distinction is subtle but important.
Being the only real investor is not enough by itself
This may feel counterintuitive.
The investor provides almost all the money.
The fund manager has minimal economic exposure compared with the investor.
The investor therefore carries almost all the financial consequences of the fund’s decisions.
Surely that must mean the manager is acting for the investor?
Not necessarily.
Economic concentration is relevant, but the contractual and governance arrangements still need to be analysed.
The fund may have been designed to accept several institutional investors even if only one ultimately subscribed.
The manager may have been appointed with authority built into the fund structure rather than receiving that authority from the investor.
The investor may have no substantive right to remove the manager during normal operations.
Those facts can prevent the accounting analysis from collapsing into a simple rule that the biggest economic stakeholder controls the fund.
Purpose and design matter
IFRS 10 requires investors to consider an investee’s purpose and design when assessing control.
This is especially important where voting rights do not provide an obvious answer.
Understanding why the fund exists and how decisions were allocated at inception helps identify who has power.
In the current fact pattern, the manager determined the fund’s purpose and design.
The fund was structured to provide investment opportunities to institutional investors.
The fact that only one outside investor ultimately subscribed does not necessarily rewrite the original governance arrangement.
This creates a useful lesson for SBR candidates.
Do not analyse the structure only as it appears at the reporting date.
Consider how it was designed.
Who determined the important activities?
Who was given the authority to direct them?
Were those rights built into the structure, or were they delegated later?
That background can change the conclusion.
Relevant activities come before ownership
A good control analysis starts by identifying the activities that significantly affect returns.
For an investment fund, those activities are likely to include decisions about which investments to acquire, hold and sell.
The next question is who has the current ability to direct those activities.
If the fund manager chooses the portfolio investments and the investor cannot direct or replace that manager through substantive rights, the investor may lack power even though it receives almost all the returns.
That does not automatically mean the fund manager controls the fund either.
If the manager is genuinely an agent, the manager itself does not control the investee.
This is what makes the scenario interesting.
It is possible for the analysis to require much more than choosing between “manager controls” and “investor controls” based on one obvious fact.
The complete IFRS 10 model has to be applied.
The agent assessment has its own judgement
Determining whether a decision-maker is a principal or an agent is itself a judgement.
IFRS 10 considers factors including the scope of the decision-making authority, rights held by other parties, the remuneration received by the decision-maker and the decision-maker’s exposure to variability of returns through other interests in the investee.
No single factor necessarily decides the question.
A fund manager receiving only normal market-based fees may look more like an agent than a manager with a large direct investment and significant exposure to performance.
Rights held by other investors can also affect the assessment.
If other parties can remove the manager without cause, that may strongly indicate agency.
The key point for candidates is that the conclusion should emerge from the facts.
Do not simply write that fund managers are agents.
Some are.
Some may be principals.
The contractual and economic substance determines the answer.
Consolidation should follow control rather than economic importance
The consequences of getting this assessment wrong can be significant.
If the investor controls the fund, it generally consolidates the fund.
That brings the underlying assets, liabilities, income and expenses into the investor’s consolidated financial statements, subject to the applicable accounting requirements.
If the investor does not control the fund, the accounting can be very different.
The investment may instead fall within another accounting treatment.
That can fundamentally alter the appearance of the investor’s financial statements.
This is why management cannot choose the control conclusion based on which presentation it prefers.
The control assessment must be supportable.
Management incentives can make the judgement sensitive
Control conclusions can affect reported assets, liabilities, revenue and performance measures.
That creates the potential for management bias.
One presentation may produce a larger balance sheet.
Another may affect leverage ratios.
Management may prefer not to consolidate a vehicle containing significant debt.
Alternatively, it may prefer consolidation where the underlying assets support a particular performance story.
The professional accountant should therefore approach borderline control assessments carefully.
Contracts should be examined.
Rights should be classified as substantive or protective.
The role of the manager should be analysed.
The purpose and design of the fund should be understood.
The conclusion should then be documented clearly.
That evidence becomes especially important when the ownership percentage makes the accounting outcome look surprising.
A 99.99 per cent investor needs a strong explanation if it does not consolidate
Users may naturally question why an entity that appears to own almost the entire economic interest of a fund has not consolidated it.
If the conclusion is that control does not exist, the reporting needs to make that judgement understandable where it is material.
Simply saying that the fund manager makes the decisions may not be enough.
Users need to understand the rights involved and why the investor lacks power.
Material judgements made in determining control may therefore require disclosure.
This is part of high-quality reporting.
A technically correct conclusion becomes far more useful when investors can understand how management reached it.
How this could appear in an SBR scenario
Imagine an investment company provides 99 per cent of the capital in a specialist property fund.
An external manager selects properties, negotiates acquisitions and disposals and manages financing.
The investor receives almost all the variable returns.
However, it cannot remove the manager unless there has been serious misconduct.
Management argues that the fund should automatically be consolidated because the company bears almost all the economic risk.
A weak answer would agree because the investor owns 99 per cent.
A better answer would apply the three elements of control.
The investor clearly has exposure to variable returns.
The difficult issue is power.
The removal right appears protective because it operates only in exceptional circumstances.
The candidate should then assess who directs the relevant activities, whether the manager is a principal or agent and, if it is an agent, whether its decision-making authority was actually delegated by the investor.
Only after completing that analysis should the candidate reach a consolidation conclusion.
That is a proper IFRS 10 answer.
Do not turn the tentative decision into a new rule
The current Interpretations Committee position also requires careful wording.
The Committee published a tentative agenda decision in June 2026.
The consultation period closed on 9 September 2026, and the Committee is due to consider the feedback before finalising its position.
Candidates should therefore avoid claiming that a new accounting standard has been issued.
The important message from the tentative decision is that the existing IFRS 10 requirements already provide the framework for the assessment.
The Committee’s current view is that being the only investor, even with an overwhelming economic interest, does not by itself establish that the investor has delegated authority to the fund manager or controls the fund.
The complete control assessment remains necessary.
This is really a professional judgement question
There may be no complicated calculation.
That does not make the issue easy.
The difficulty is identifying what matters.
Percentage ownership is highly visible.
Decision-making arrangements can be buried inside contracts.
Protective rights can look stronger than they really are.
Agency language can encourage candidates to jump to the wrong conclusion.
The successful answer slows down and separates those issues.
What are the relevant activities?
Who directs them?
What rights does the investor actually hold?
Are those rights substantive?
Is the manager a principal or agent?
If it is an agent, whose authority is it exercising?
Does the investor have both power and exposure to returns, plus the ability to use that power to affect those returns?
That sequence is far more reliable than starting with 99.99 per cent and working backwards.
What candidates should take from the issue
Control questions are rarely won by memorising ownership thresholds.
They are won by understanding rights.
If a scenario gives you a very high percentage holding, treat it as evidence rather than a conclusion.
If a manager makes the decisions, determine whether that manager is acting as principal or agent.
If the manager is an agent, do not automatically attribute its powers to whichever investor has the biggest financial interest.
Ask who actually delegated the authority.
Candidates developing these judgement-heavy areas through an ACCA SBR course should practise explaining the reasoning in plain English. A clear explanation of why power exists or does not exist is more valuable than several paragraphs repeating the IFRS 10 definition.
The percentage is only the beginning
A 99.99 per cent investment tells you something important.
It tells you who receives almost all the upside and bears almost all the downside.
It does not automatically tell you who controls the decisions that create those returns.
That is why IFRS 10 asks more.
Control depends on power, returns and the connection between them.
In straightforward companies, ownership and power often sit together.
In investment funds, structured entities and delegated management arrangements, they can separate.
When they do, the accountant has to look beyond the percentage.
The biggest investor may carry nearly all the economic risk.
That still does not remove the need to find out who actually holds the power.